[Federal Register Volume 83, Number 31 (Wednesday, February 14, 2018)]
[Notices]
[Pages 6629-6630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02978]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82663; File No. SR-DTC-2017-023]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change To Restore the Timeframe for 
Processing Credit Post-Payable Adjustments

February 8, 2018.
    On December 21, 2017, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2017-023, pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on January 8, 2018.\3\ The Commission did not 
receive any comment letters on the proposed rule change. For the 
reasons discussed below, the Commission approves the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 82433 (January 2, 2018), 
83 FR 927 (January 8, 2017) (SR-DTC-2017-023) (``Notice'').
---------------------------------------------------------------------------

I. Description of the Proposed Rule Change

    The proposed rule change would modify DTC's Distributions Service 
Guide (``Guide'') \4\ to (i) increase the timeframe for accepting a 
request from an issuer or its agent (``Paying Agent'') for a post-
payable adjustment (``PPA'') that results in a credit payment, and (ii) 
make technical changes to the Guide, as more fully described below.
---------------------------------------------------------------------------

    \4\ Available at http://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Distributions-Service-Guide-FINAL-January-
2017.pdf.
---------------------------------------------------------------------------

A. Current PPA Process

    On a daily basis, DTC collects and allocates distributions on 
securities held by DTC.\5\ The distributions are commonly referred to 
as principle and income payments, and they include dividend, interest, 
principal, redemption, and maturity payments, as applicable.\6\ 
Occasionally, an error can occur with a principal or income payment due 
to an error on the part of the Paying Agent, trustee, issuer, or a 
change in the principle factor or rate.\7\ When an error occurs, Paying 
Agents can request that DTC issue a PPA. A PPA can result in a debit 
(``Debit PPA'')

[[Page 6630]]

or credit (``Credit PPA'') to the affected DTC participant 
(``Participant'').\8\
---------------------------------------------------------------------------

    \5\ Notice, 83 FR at 927.
    \6\ Id.
    \7\ Id.
    \8\ Id.
---------------------------------------------------------------------------

    Upon the receipt of a PPA, affected Participants would need to make 
adjustments to their affected customers' accounts for any misapplied 
principal or income and any associated interest.\9\ In addition, 
affected Participants may need to process adjustments against any 
customer that traded the security after the initial payment had 
occurred.\10\
---------------------------------------------------------------------------

    \9\ Id.
    \10\ Id.
---------------------------------------------------------------------------

    Currently, DTC does not accept a request for a PPA, regardless of 
whether it would be a Debit PPA or a Credit PPA, beyond 90 calendar 
days after the initial payment date.\11\ If a Paying Agent wants to 
make a PPA beyond 90 days, the adjustment cannot be processed through 
DTC.\12\ Instead, the Paying Agent must request from DTC a listing of 
all affected Participants and positions.\13\ Then, using that list, the 
Paying Agent must contact each affected Participant to make direct 
adjustments and/or payment arrangements outside of DTC.\14\
---------------------------------------------------------------------------

    \11\ Id.
    \12\ Id.
    \13\ Id.
    \14\ Id.
---------------------------------------------------------------------------

B. Proposed Timeline for Credit PPAs

    DTC proposes to extend the 90-day cutoff for PPA Credits to one 
year.\15\ DTC states that the new timeline for Credit PPAs would allow 
Paying Agents more time to correct allocations to Participants 
efficiently through DTC, rather than requiring the Paying Agent to make 
the Credit PPAs bilaterally with each Participant, outside of DTC.\16\ 
DTC states that this efficiency would allow Participants, their 
customers, and end investors to receive their credits more quickly.\17\
---------------------------------------------------------------------------

    \15\ Id.
    \16\ Id.
    \17\ Id.
---------------------------------------------------------------------------

    The proposed rule change would not alter the timeline for Debit 
PPAs. DTC states that Debit PPAs create significant credit risk 
exposure for Participants, customers, and investors as more time 
passes.\18\ DTC states that Participants have difficulty recovering 
debited funds from their customers that may no longer have an account, 
may not have available funds, or may no longer service the end 
investor.\19\ Therefore, DTC would preserve the 90-day cutoff for Debit 
PPAs.
---------------------------------------------------------------------------

    \18\ Id. at 927-28.
    \19\ Id. at 928.
---------------------------------------------------------------------------

C. Proposed Technical Changes to the Guide

    DTC also proposes some technical changes to the Guide. 
Specifically, DTC would modify the Guide to (i) remove an inaccurate 
statement that PPA adjustments appear on Participant statements--such 
adjustments do not appear on Participant statements; (ii) add the word 
``principal'' to the list of payments that may be subject to a PPA--for 
consistency with the term ``P&I'' and (iii) remove an incorrect 
reference to CMO/ABS securities.\20\
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \21\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. The Commission finds that this proposal is 
consistent with Act, specifically Section 17A(b)(3)(F) of the Act.\22\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2)(C).
    \22\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of the clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\23\ By extending 
the cutoff period from 90 days to one year for the processing of Credit 
PPAs through DTC, DTC would be providing centralized processing for 
Credit PPAs for a longer period. Enabling Paying Agents to avail 
themselves of such central processing for a longer period would help 
the Paying Agents avoid the manual process of bilaterally processing 
the Credit PPAs outside of DTC after 90 days. In doing so, the proposal 
would enable Paying Agents to correct errors in Credit PPAs more 
efficiently and effectively over a longer period. Therefore, the 
Commission finds the proposed extension from 90 days to one year for 
Credit PPAs to be processed by DTC would help promote the prompt and 
accurate clearance and settlement of securities transactions, 
consistent with Section 17A(b)(3)(F) of the Act.\24\
---------------------------------------------------------------------------

    \23\ Id.
    \24\ Id.
---------------------------------------------------------------------------

    The Commission also finds that DTC's technical changes to the Guide 
would promote the prompt and accurate clearance and settlement of 
securities transactions, consistent with Section 17A(b)(3)(F) of the 
Act.\25\ Clarifying terms and descriptions in the Guide would help make 
the Guide more accurate and clear. Maintaining an accurate and clear 
Guide would enable Participants and other stakeholders to better 
understand their respective rights and obligations. Accordingly, the 
Commission finds that the proposed change to make technical changes to 
the Guide would promote the prompt and accurate clearance and 
settlement of securities transactions, consistent with the requirements 
of Section 17A(b)(3)(F) of the Act.\26\
---------------------------------------------------------------------------

    \25\ Id.
    \26\ Id.
---------------------------------------------------------------------------

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act, in particular 
the requirements of Section 17A of the Act \27\ and the rules and 
regulations thereunder.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-DTC-2017-023 be, and hereby is, 
approved.\28\
---------------------------------------------------------------------------

    \28\ In approving the proposed rule change, the Commission 
considered the proposals' impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02978 Filed 2-13-18; 8:45 am]
 BILLING CODE 8011-01-P